Just prior to his Christmas break, President Obama signed a bill to extend many popular tax incentives (commonly referred to as “Extenders”). Understand that these Extenders expire on December 31, 2014. Businesses only have this week to make decisions regarding this tax bill!
Called the Tax Increase Prevention Act of 2014, here are some highlights as it applies to business taxpayers:
Code Section 179 Expensing Of Property
The very popular §179 which expenses in one year the cost of equipment and other certain property has been extended through 2014. The dollar limit for 2014 is $500,000 up to a $2 million investment limit. After December 31, 2014, the dollar limit drops to $25,000 with a $200,000 investment limit.
Bonus depreciation has been extended. Bonus Depreciation allows taxpayers to claim an additional first year depreciation deduction by allowing an extra 50 percent deduction of the cost of new equipment and other allowable property placed in service in 2014. It is offered on top of Section 179 expensing and standard depreciation limits.
Bonus depreciation also applies to vehicles used in business. There may be dollar limitations, however, on the amount of a bonus depreciation deduction, along with Section 179 and other depreciation provisions, depending upon the type of vehicle it is (passenger automobile, truck or van, SUV, or heavy vehicle) as defined by IRS.
Bonus depreciation may not be extended for 2015. 2014 could be the last year in which substantial first-year write-offs for the purchase of new equipment and business vehicles are available.
Research Tax Credit
Commonly called the research or research and development (R&D) credit, the 2014 Tax Prevention Act extends it as well. The R&D credit applies to qualified research or experimentation expenditures to create or improve a product or process. It is often overlooked by small businesses to their peril.
Employer Wage Tax Credits
The Work Opportunity Tax Credit (WOTC) is to reward employers that hire individuals from targeted groups with a tax credit. These targeted groups include ex-felons, long un-employed, service-disabled veterans, SSI and other federal aid recipients, and summer youth employees.
There is also an Activated Military Reservist Credit which provides a tax credit to employers that hire active National Guard members or reservists.
Both the Activated Military Reservist Credit and the WOTC are tax credits that are oft-underused by small businesses.
Qualified Leasehold/Retail Improvements, Restaurant Property
The 2014 Tax Prevention Act extends the 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property. Otherwise, these costs are generally recovered over 39 years!
Small Business Stock Capital Gain Exclusion
The Small Business Stock Capital Gain Exclusion is an incentive to encourage investment in small business. 100 percent of the gain from sale of a qualified small business stock (QSBS) is excluded from tax! The general rules of a QSBS include the type and size of entity issuing the stock, the holding period of the stock, and the amount of exclusion. The exclusion could be as low as 50% for year 2015!
The 2014 Tax Extenders could have a significant impact on your business. Remember that you only have this short holiday week to make a decision! If you have any questions about the extenders or how it affects you, contact our office. We will be happy to assist you.